Part 3: The Ineffectiveness of Economic Policy

Part 3: The Ineffectiveness of Economic Policy

photo: Nicolas Raymond While the central bank and government policies have stabilised conditions, they have not restored growth or created sufficient inflation to address the world’s debt problems. As Helmuth von Moltke, a 19th century head of the Prussian army, observed: “No battle plan ever survives first contact with the enemy”. Given that the bulk of […]

Part 2: Monetary Madness

Part 2: Monetary Madness

photo: againstcronycapitalism  Central banks have reduced official interest rates to historically lows, either near zero (known as ZIRP or Zero Interest Rate Policy). Long term bond rates are also at historically low levels. In some parts of the world, interest rates are now negative; that is, you get paid to borrow and punished if you save. […]

Whither Emerging Markets Foreign Exchange Reserves

Whither Emerging Markets Foreign Exchange Reserves

After a exponential rise in foreign exchange reserves accumulation by emerging markets from 2000 onwards, the tide seems to have turned south since mid-2014. Changes in capital flows and commodity prices have been major factors behind the inflection, with the new direction expected to remain, given the context of the global economy going forward. Although […]

Janet Yellen’s Quiet Revolution

Janet Yellen’s Quiet Revolution

Donald Trump turned his rhetorical bazooka on Janet Yellen this week, accusing the Fed chair of being “highly political” and merely doing President Barack Obama’s bidding by declining to raise interest rates. In this as in so many things he says, Trump was issuing wisdom from his rear end, but the GOP candidate from clowntown […]

US Fed: It Is Not “The When”, It Is How Long It Will Take to Normalize Policy

Key takeaway – On September 16-17, the US Federal Reserve (Fed) will take a difficult decision: to hike rates for the first time in nearly a decade – or wait. It is a close call: US domestic economic conditions could justify tighter policy but remain fragile. While the GDP is growing, inflation is below the […]

Should We Worry About Higher Interest Rates?

By Hamid Faruqee: Global interest rates will eventually move higher. We do not know precisely when,  how fast, or how far, but we do know the direction. After a long period of very low interest rates following the global financial crisis, some central banks (mainly, the U.S. Federal Reserve and the Bank of England) are planning […]

Fed Watch: Inflation Hysteria

It appears that a case of inflation hysteria is gripping Wall Street. Joe Weisenthal at Business Insidersums up the current state of play: Here’s what’s on Wall Street’s mind right now: Inflation is finally happening, and the Fed will end up being behind the curve. …there were two big moments this week. 1) There was the […]

Policy Transmission Mechanism: Broken in Italy, Better in Spain

Yesterday, the Financial Times reported that borrowing costs for small businesses in the periphery were rising relative to the core using the ECB’s release of July MFI interest rate data. I highlighted this point exactly on August 1 following Draghi’s now famous London speech, where he cautioned that monetary transmission mechanism is ‘hampered’. As opposed […]

Evidence of Hampered Monetary Policy Transmission Channel in the Euro Area

Mario Draghi cautioned on the ‘hampered’ transmission channel of monetary policy in his now famous London speech last week: To the extent that the size of these sovereign premia hampers the functioning of the monetary policy transmission channel, they come within our mandate. I referred to the clogging of rates policy back in April via […]